Manhattan Moment: Don't expect genuine reform from higher education

Secretary of Education Arne Duncan did not mention President Obama's recent higher-ed reform planÂ in his recent address on the state of American education, but the efforts of "a number of universities" to "creatively keep down costs while maintaining or improving quality." (Getty Images/Bryan Bedder)

Recent troubling news from the U.S. Department of Education revealed that a full 10 percent of borrowers are now defaulting on their student loans within two years of starting to repay them, and 15 percent are defaulting within three years.

These figures, released as part of a larger set of data on student debt, are not terribly surprising. Default rates have grown steadily over the past decade, helped in part by the weak economy and congressional inaction on student debt.

However, the education department’s data deserves our attention for a number of reasons, not least because these default rates are the highest since 1995.

That data show that, though students who attend the much-maligned for-profit colleges and universities have the highest two-year default rates (13.5 percent), their default rate has decreased since 2009.

In contrast, the default rate for students attending non-profit public and private institutions has grown 3.4 and .6 percent, respectively. It’s near impossible to make any definitive statement about these trends, but it is clear that no sector of the higher-education industry is immune from the problem of rising debt.

Though the recession is probably to blame for the sharp increases in student debt, a large reason for the decades-long growth in student debt is the loan program itself.

The federal government calculates loan awards based on the cost of attending a college the borrower chooses to attend, meaning that colleges can raise tuition knowing that the government will factor that increase into the loan award.

As a result, tuition has outpaced inflation for decades and students are assuming ever-larger average debt loads. And indeed, the data indicate that the federal loan program is perhaps not working as intended.

Students who borrow through the Federal Direct Student Loan Program (FDLSP) at every type of higher-ed institution — for-profit, not for-profit public and private — have seen substantial increases in their default rates from 2009-2011.

Unexpectedly, it was public colleges and universities that saw the largest growth — nearly 100 percent — in the percentage of their students defaulting on their federal loans. However, the percentage of all students who default grew over 87 percent.

It’s important to note that students who default on their loans face serious consequences, ranging from lowered credit scores to increased fees to wage garnishment.

A recent report from Georgetown’s Center on Education and the Workforce, moreover, suggests that the burden of student debt is causing young adults to delay starting families and purchasing their first homes.

Of course, it needn’t be the case that students sacrifice financial independence for a decent college education. It is certainly possible to envision reforms to the student loan system that discipline the higher-education industry while ensuring that college is still within reach for lower-income students.

However, the higher-education industry is resolutely opposed to even the smallest reforms. Moreover, it seems unlikely that Congress will take steps to that effect, even after the shutdown.

Secretary of Education Arne Duncan indicated as much in his recent address on the state of American education, in which he did not mention President Obama’s recent higher-ed reform plan, but the efforts of “a number of universities” to “creatively keep down costs while maintaining or improving quality.”

Any change, he seemed to suggest, will come from the universities, not legislators. If that’s true, we should be really worried.

Judah Bellin is an assistant editor at the Manhattan Institute, where he researches higher education policy and edits Minding the Campus, the Institute's higher-education website.